Ethiopia has difficulty drawing full advantage from its livestock resources - the largest in Africa - because of the unreliability of pasture and water caused by persistent drought.
The new insurance scheme, known as index-based livestock insurance, aims to reduce losses, support pastoral communities, and lower the risk of conflict sparked by pastoralists migrating into agricultural areas in search of forage or water.
Coverage has been sold since July 2012 in southern Ethiopia's Borena zone by Oromia Insurance Company (OIC), with technical assistance from the International Livestock Research Institute (ILRI), U.S.-based Cornell University, and Mercy Corps, an international development organisation. Just over 500 pastoralists took up coverage initially.
The scheme was based on an earlier insurance effort rolled out in 2010 in neighbouring Marsabit region in northern Kenya, said Andrew Mude, principal economist at ILRI in Nairobi.
There, payouts were based on livestock deaths. But "the (experience) we had with the Kenyan programme was that some animals are more hardy than others, and so (with) differential mortality rates ... (it) was a bit complex," Mude said.
The insurance offered by OIC in Ethiopia instead offers coverage based on the actual scarcity of the herders' forage, rather than the mortality rate of their livestock.
HOW IT WORKS
The insurance uses NASA satellite data to look at forage availability in the Borena zone. Experts from ILRI and Cornell University compare current images with historical data from the past 30 years.
"We provide the technical expertise to understand how to use the information from satellites on the state of forage on the ground," Mude said.
The timing and amount of insurance payouts are then calculated based on the severity of the lack of forage.
OIC's insurance will pay out up to 6,000 Ethiopian birr ($300) for a cow, 10,000 birr ($500) for a camel, and 800 birr ($40) for a sheep or goat annually. Pastoralists pay premiums averaging about 7.5 percent of the value of the maximum payout.
If forage levels become scarce compared to the index based on the historical satellite data, the herder receives compensation, even if no livestock have been lost.
In response to poor forage conditions, OIC made its first payout to all the insured holders, totalling 570,000 birr ($28,300), at the beginning of November this year at a ceremony in Yabelo, a town 565 km (353 miles) south of the capital, Addis Ababa.
Mude said that although livestock is the key productive asset and source of income for pastoralists, the novelty of insurance in this remote region initially made it difficult to sell.
ILRI spent two years researching the needs of the Borena zone herders before formally launching the insurance.
A further challenge is how to assess the damage suffered by policyholders when dealing with a mobile population.
Mude explained that an important feature of the insurance is that pastoralists remain covered even if they migrate out of the woredas (districts) where they are insured, since migration itself implies that there is a severe lack of forage. Compensation is therefore calculated based on the area where they were initially insured.
Wondimu Beteyo, a pastoralist who received a payout for his cattle and goats, says that until recently he had to trek several days for pasture and water. Now, he says, the money he has received will allow him to replenish the cattle he lost during the recent drought.
Dono Kotelo, from Teltale woreda, insured his two goats and two cattle for a total of 1,048 birr ($50) after learning about the insurance scheme. Although none of his animals died, because he migrated to find pasture, he received a payout of 192 birr ($10) for costs associated with the dry season and said he plans to buy insurance again for the coming year.
LOWERING CONFLICT RISK?
Getaneh Eerena, a livestock insurance officer at the micro-insurance department of OIC, said that in the long run the programme is not just about financial payments but about avoiding conflicts.
"The area tends to have high conflict incidence, both within (the) pastoralist community and against agricultural communities," Eerena said.
Kotelo, the herder, said his Borena community used to cross into the land of agricultural communities when their own pastures were exhausted, often leading to deadly clashes.
Mude and Eerena said their organisations planned to extend the insurance scheme eventually across the country.